Maximize Value Before a Sale: Take Advantage of Low Hanging Fruit

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June 3, 2024

Often, business owners who have made the decision to sell their business tend to disengage from it. Many opt for the path of least resistance, focus on minimizing expenses and prioritize speed over results. They almost always end up disappointed with the outcome.  That is why we advocate for a disciplined planning and preparation process before embarking on a sale.

Even if there is a rush to the exit, one can still take advantage of 'low hanging fruit' – make simple fixes or attend to easily addressable weaknesses. In the realm of M&A, there can be real value in this ‘fruit’ that should not be ignored.  Depending on your timeline, there are several areas that are typically “ripe” in most middle-market family-held or founder-led companies that, if addressed, could generate a higher purchase price.

Profit Enhancements

Every dollar saved directly boosts bottom-line profitability, and thus increasing the company's value by the multiple applied to such profit.

  • Raise prices: When did you last increase pricing? Especially given recent challenges like supply chain disruptions and rising commodity prices, most customers expect it.
  • Explore Discounts:  Most vendors offer volume discounts and/or discounts for long-term commitments.   Why not ask for them?  These discounts set the stage for future profitability enhancements and may even be considered an ‘add back’ to historical profitability which certainly increases value.
  • Review operating expenses:  Most owners are hyper-focused on the big expenses (costs of materials, labor, etc) but it may be worth reviewing other operating expenses too.  By addressing these other costs, it may be surprising how much you can save.  
  • Address underperforming personnel:  Addressing (and even terminating) underperformers may not be easy, but it can make a real difference in valuation.  It not only can positively impact valuation (with another add-back), but it also showcases management’s proactivity and leadership, potentially leading to incremental value enhancement.
  • Focus on Net Working Capital: It is expected that the business will be delivered with a ‘normal level of net working capital’  so optimizing net working capital—current assets minus current liabilities—can yield real benefits at closing. Accelerating receivables or delaying payables within reason can translate into significant incremental cash at closing.

Perform Environmental Due Diligence

Environmental issues have always been important, and they are becoming an area of even more scrutiny.  Prior to approaching the markets, invest in a Phase I Environmental Report to prove that you are clean.  

Review Contracts

This sounds silly, but many middle market companies have been chugging along for years with their long term customers on a handshake or an understanding.  Ensure your contracts are up-to-date and properly executed or at least document the key terms of the relationship.

Develop Your Growth Plan

The most important area of focus for investors is growth.  Remember that Investors invest for the future, regardless of the past, so you should have a clearly articulated growth plan.  Focus not only on your current core strengths and normal operations, but also identify key areas of untapped opportunity.  When an investor shares that vision and can bring expertise needed to take advantage of the opportunity, they typically drive value higher.  

Upgrade Business Presence

You only have one chance to make a first impression.  Enhancing your online presence through a modern, dynamic website and maintaining a well-presented physical plant can really influence investor perceptions and boost overall business appeal.

These are all truly 'low hanging fruit' opportunities and can be easily addressable with just a marginal amount of effort but they can have a big impact on your ultimate outcome.

Take the Next Step Towards a Successful Business Sale with CMG

The journey to any successful transaction begins with disciplined preparation well in advance. Contact us today to discuss how we can help your family business through this complex process.

About Carter Morse & Goodrich

Located in Southport, Connecticut, Carter Morse & Goodrich is a boutique M&A advisory firm that specializes in representing founder-led and family-held businesses valued between $25 million and $250 million. While CMG provides a full range of investment banking services, our primary focus is representing owners who are pursuing their once-in-a-lifetime M&A transactions. CMG specializes in advising leading companies in niche markets to plan, prepare, execute, and close successful transactions that maximize shareholder value. CMG fully understands and appreciates the unique dynamics of closely-held businesses and the importance of owner legacies. For 35 years, the combination of our hands-on approach, senior banker attention, strategic guidance, seamless transaction execution and extensive network of domestic and international resources has enabled us to become a trusted advisor to hundreds of business owners.

CMG's Broker/Dealer affiliate, Carter Capital Corporation, is a FINRA member firm registered with the SEC and SIPC.

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